A more tragic turn would be to have Tommy be completely unaware about the Undertaking until he's gone to far to go back. If Tommy will be the new bad guy, I'd hope his perception of Malcolm and Ollie's battle is that of an understandable blood feud that he feels he's being dragged into. So I'd rather he start out as just a rival until he starts killing enough innocent people he doesn't care about the Undertaking.

I prefer the Malcolm as Merlyn theory because it makes their family the opposite of the Queens; One father slays himself in a last redeeming act to drive his son to atone for their sons, and the other father slays his son in a final damning act trying to ultimately corrupt his family's legacy. It would also help define Malcolm as an irredeemably evil villain who nonetheless has a very disturbingly emotional storyline.